CPF Retirement Sum Scheme

[crimsontactics]

Hi guys, my father is going to reach 65 in 1 month and will be receiving his RSS of about $103x/monthly. He currently have FRS in his RA.

The qn I want to ask is that is it better if he convert to CPF life?
With CPF life, the amount that he will be getting under the standard plan is $976-$1031 (from CPF Life Calculator).

Isnt it clearly the better option to switch to CPF life from RSS since CPF Life can last him for lifetime, whereas RSS will only stop at roughly 85-90?

Is there any things that I missed out, since its no brainer to switch to CPF Life?

Depends on your family's financial situation. Because if your father pass away before 85, you do get all the remaining money in his CPF RA back.

Personally, I would first look at his family health history to judge his longevity. If high chance live long, choose CPF Life. Vice versa for low chance.

Then I would see if I am financially able to support him after 85. If I am, I would choose RSS over CPF Life.

Because with an average life expectancy of 80 for SG men, it is very hard to hit the break even point of around 90 years old for CPF Life

Sent from . using GAGT

 

[maple96]

Got an aunt who is 61 this year, born 1959.

Her CPF statement (paper one sent on jan for 2019 accounts) reads as this:

OA: 11k
SA: 3k
MA: 57k
RA: 37k

In the statement it also states that she is enrolled for CPF life standard plan with a payout of $840-$918 from 65 onwards.

Now i do not understand how come with a RA balance of 37k she can get such a monthly payout. Did the payout calculation at CPF website and it stated $274 or something similar i can’t recall.

Called CPF to enquire about this as my aunt keeps mentioning she needs to top up anoter $40k to meet her minimum sum of $155k. She is thinking of selling her house to achieve this which i told her she need not. So CPF replied that my aunt is enrolled in CPF Life’s standard plan and that the payout cannot be calculated via the website’s calculator as she is from the 1959 batch. Was advisd to write in using her Singpass and seek answers.

Now i am quite confused as i thought once u turn 55, funds from OA and SA will be transferred to RA up to FRS and once u hit 65, CPF life will start based on the payout u choose at 64.5 years old. Can someone correct my understanding please? And can the suggested payout of $840-$918 be trusted or should my aunt just take it with a pinch of salt? How was this amount derived? TIA.

For her cohort, ie born in 1959, the CPF rules at that time when she turn 55 are different from current. At 55, her cohort has to choose the CPF Life Plan. She chose Standard Plan. So CPF transferred 50% of FRS as premium to the CPF Life pool. U should be able to find this amount in the Statement (check one of the pages which state she joined CPF Life and the amount transferred into the Standard Plan). If FRS is 155lk, then u should see 77,500 posted there.

If now she only has 37k in RA, it implied at 55, she has less than 155k.

So before she turns 65, CPF will transfer from SA/OA to RA to fund RA to FRS (the difference 77,500 less balance in RA at 55), then transfer 77,500 (plus interest?) to the CPF Life pool. If she has insufficient money at 65, she need not topup with cash, it is her choice. Pls double confirm this and the calculatons with CPFB (how CPF calculates the remaining 50% to be transferred to CPF Life Pool I am not sure if it is below FRS at 55). (how she got 40k = 77500 less 37k in RA now?)

Then she has to decide 6 mths before 65 whether she wants to start payout at 65 or defer till 70.

What CPFB had estimated is likely to be correct estimated payout for her after considering the above.

 

[dork32]

Hi guys, my father is going to reach 65 in 1 month and will be receiving his RSS of about $103x/monthly. He currently have FRS in his RA.

The qn I want to ask is that is it better if he convert to CPF life?
With CPF life, the amount that he will be getting under the standard plan is $976-$1031 (from CPF Life Calculator).

Isnt it clearly the better option to switch to CPF life from RSS since CPF Life can last him for lifetime, whereas RSS will only stop at roughly 85-90?

Is there any things that I missed out, since its no brainer to switch to CPF Life?

cpf life payout gives over a range is becoz interest fluctuates. based on the number, your dad will be getting about 1002 a month on standard. this is 30 less than rss payout

let say the rss payout can last till 90, and your dad sway sway die at 90. he would be losing $30/mth *12 mth * 25 years = $9000 (ignoring the time value of money).

The question is this : do you want to take out this $9000 to buy insurance such that the payout can continue forever.

again there is no right or wrong answer

 

[BBCWatcher]

Another consideration is that classic RSS really only offers one payout variation. CPF LIFE offers three payout plan choices: Standard, Escalating, and Basic.

The Escalating Plan is the only inflation fighting plan among the four payout choices. The Escalating Plan's nominal monthly payout amount starts lower than either the Basic or Standard Plan, but then the payouts increase 2%/year atop the baseline. This approach is the best available CPF option for preserving a particular, real lifestyle on a steady basis for the member's entire retirement lifetime. In contrast, fixed nominal monthly payouts lose purchasing power over time due to inflation. S$1,03x/month today, in 2020, surely won't buy as much in 2040 and beyond. (And $0/month buys nothing, of course, which is what happens under classic RSS if a member merely lives long enough.) Whether a member selects the Escalating Plan or not is up to the member, but regardless a CPF member ought to have some reasonable, viable financial plan to combat inflation throughout retirement. Inflation is real and its continued existence is predictable (even if its exact level isn't), although fortunately it's low in Singapore at the moment.

Yet another consideration is choosing a payout start age. Age 65 is the minimum, but he can start payouts as late as his 70th birthday or any time in between. The later payouts start, the higher the monthly payout amount under all four payout plan choices. Also, a later start means up to 5 years of additional information about one's own health and expected longevity, allowing some greater insight into plan selection. It's also possible to start payouts as early as age 65, suspend them, then start them up again at any time up to one's 70th birthday. That could be a reasonable choice for someone who needs "a little" cash flow immediately but otherwise can wait.

Still yet another consideration is that it's possible to start payouts on the classic RSS plan then switch to CPF LIFE as long as that switch is made no later than a couple months before one's 80th birthday. Switching the other way, from CPF LIFE to RSS, is not allowed, although it is possible to add Retirement Account top ups and have those top ups paid out as Additional Monthly Payments (AMPs) which are like "mini RSSes" -- or as boosters to CPF LIFE payouts instead of AMPs, as preferred. If you switch from RSS to CPF LIFE then the CPF LIFE payout amount could be fairly small. How small depends on when the switch is made.

Finally, the government is encouraging CPF LIFE participation precisely because it does provide retirement income for life, and there are some potential incentive offers available depending on his situation that boost his CPF LIFE payouts. The Silver Housing Bonus is one possible example available to some.

 

[maple96]

2 good reads

Good read

https://www.income.com.sg/blog/cpf-...SnH9SwajxJ_q5KG6e6LL3S_kOMLy5Q6vSypekntP6L5ls

Good read

https://www.straitstimes.com/busine...AkpfaFmqSRrE7h9I7I8fxadLco#Echobox=1588052867

Last para extracted below:

"Finally people should view retirement as not the end but the beginning of another life adventure. And money, while important in this journey, is not everything. After all, the happiest people don't have the best of everything, they just make the best of everything they have. "

 

[snowblaze]

I think that's a great idea. The returns on CPF Retirement Account top ups/CPF LIFE payouts are superb especially at this level. If you can spare at least $7,000 to make a deposit into your parent's Retirement Account (credited within this month), and get some tax relief in the process, it's hard to beat that.

But what does the family's wealth look like right now? For example, is this parent living alone in a fully paid 5 room HDB unit adjacent to Lavender MRT station with 85 years of remaining leasehold? Anything in your parent's Ordinary or Special Accounts?
Even if this parent was born earlier opting into CPF LIFE is probably wise. There are potential extra rewards available, but we'll get to that.

Thanks again BBC for your kind advice. My parent’s CPF-OA has about $7K. We’re from a lower income family, so not much CPF. Currently Both my parents are staying in a 3-room flat, with probably 50 years of lease left.

In topping up my parent’s CPF-RA, I am also thinking of transiting to the CPF life at later age (say 69) so it would give me a few more years to top up the RA account every year.

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[BBCWatcher]

My parent’s CPF-OA has about $7K.

OK. From age 55 that's a $7K "piggy bank" earning 2.5% interest, and that's not a bad thing. It is possible to transfer some/all of those dollars into your parent's Retirement Account where they'd earn at least 4%. Of course then they'll need to stream out as monthly payments, which is not the same as a "piggy bank."

We’re from a lower income family, so not much CPF. Currently Both my parents are staying in a 3-room flat, with probably 50 years of lease left.

OK, that seems really quite reasonable. There is something called the HDB Lease Buyback Scheme which is a good program if they need to raise some funds from the equity in their HDB leasehold (and if they qualify) while still being able to live in their unit. It's something they could investigate to see if it's a good fit. The government heavily promotes that Scheme as a way for elder Singaporeans to boost their retirement income, and it often makes sense.

Bear in mind that each parent separately qualifies for bonus interest on the first $60,000 of combined CPF balances (of which up to $20,000 can be counted from OA specifically). Meaning that usually you/they want to make sure that both of them are maximizing available bonus interest. Let's suppose for example Parent #1 has these balances:

OA: $7,000
MA: $10,000
SA: $3,000
RA: $58,000

and Parent #2 has these balances:

OA: $23,000
MA: $4,000
SA: $2,000
RA: $28,000

Parent #1 is already earning maximum bonus interest. MA+SA+RA is $60,000 or more, and that's good enough to do it. However, Parent #2 in this example isn't earning maximum bonus interest. Parent #2 is earning bonus interest on MA+SA+RA ($34,000) plus $20,000 from OA = $54,000. That's less than $60,000, so there's some bonus interest yet to be earned. Therefore, unless there's a good/strong reason otherwise, Parent #2 should get at least the next $6,000 of Retirement Account top ups because that'll earn 5% interest (4% base interest plus the 1% bonus interest), a higher interest rate than Parent #1 would earn on the same top up. Also, in this example Parent #2 has quite a lot of Ordinary Account dollars earning only 2.5% interest relative to Retirement Account dollars, so it's probably a good idea to transfer some OA dollars into RA.

In topping up my parent’s CPF-RA, I am also thinking of transiting to the CPF life at later age (say 69) so it would give me a few more years to top up the RA account every year.

That's certainly allowed, but you (and anybody else) is still allowed to top up a CPF Retirement Account even after CPF LIFE payouts start. The only top up limit is the current Enhanced Retirement Sum, based on principal only. (Interest doesn't count toward this particular limit.)

When you top up a CPF Retirement Account after CPF LIFE payouts start, there are two choices. If the member does nothing, then the top up gets paid out as "Additional Monthly Payments" (AMPs) starting in the July following the top up. AMPs are similar to the classic Retirement Sum Scheme, so they only last for a fixed term and aren't paid for life. The other choice is to contact the CPF Board any time at least a month or two before that next July and ask for an increase in the CPF LIFE payout amount. The CPF Board will recalculate the CPF LIFE payout amount (based on the current CPF LIFE payout plan) and start paying the increased amount the next month.

 

[THEMIKOS]

Thank you Maple96 for the thorough explanation.

For her cohort, ie born in 1959, the CPF rules at that time when she turn 55 are different from current. At 55, her cohort has to choose the CPF Life Plan. She chose Standard Plan. So CPF transferred 50% of FRS as premium to the CPF Life pool. U should be able to find this amount in the Statement (check one of the pages which state she joined CPF Life and the amount transferred into the Standard Plan). If FRS is 155lk, then u should see 77,500 posted there.

If now she only has 37k in RA, it implied at 55, she has less than 155k.

So before she turns 65, CPF will transfer from SA/OA to RA to fund RA to FRS (the difference 77,500 less balance in RA at 55), then transfer 77,500 (plus interest?) to the CPF Life pool. If she has insufficient money at 65, she need not topup with cash, it is her choice. Pls double confirm this and the calculatons with CPFB (how CPF calculates the remaining 50% to be transferred to CPF Life Pool I am not sure if it is below FRS at 55). (how she got 40k = 77500 less 37k in RA now?)

Then she has to decide 6 mths before 65 whether she wants to start payout at 65 or defer till 70.

What CPFB had estimated is likely to be correct estimated payout for her after considering the above.

 

[swathe]

Assuming I did not exceed the annual maximum CPF contribution.

If I top up MA $2000 and SA $7000, is the tax relief at $9000?

 

[reddevil0728]

Assuming I did not exceed the annual maximum CPF contribution.

If I top up MA $2000 and SA $7000, is the tax relief at $9000?

capped at 7k

 

[terence2112]

capped at 7k

I don't think so. Its different.
Topping up via the RSTU method entitles to tax relief, while Voluntary Contribution (VC) to MA entitles to tax deduction.

So yes, in layman, you pay lesser tax.

 

[BBCWatcher]

Assuming I did not exceed the annual maximum CPF contribution.

If I top up MA $2000 and SA $7000, is the tax relief at $9000?

capped at 7k

I don't think so. Its different.
Topping up via the RSTU method entitles to tax relief, while Voluntary Contribution (VC) to MA entitles to tax deduction.

So yes, in layman, you pay lesser tax.

Terence2112 is correct here. Every taxpayer is subject to an overall $80,000 tax relief limit per year, and of course if you don't have any remaining taxable income to tax (because after other tax reliefs your income is already below the start of the lowest income tax bracket), then you won't get more tax relief -- we don't have negative income tax rate brackets in Singapore, not generally anyway. However, if you're contributing to your own MediSave account, there's no separate tax relief limit for your MediSave contribution. It's only Special and Retirement Accounts that have those $7,000 tax relief limits for top ups. (The actual SA/RA tax relief limit is $14,000 per year, because you get up to $7,000 for yourself and up to another $7,000 when you top up a qualified family member's Special or Retirement Account. In all cases the Special Account or Retirement Account top up must be below the Full Retirement Sum, and additional rules sometimes apply for certain family members.)

MediSave contributions must fit within both the CPF Annual Limit and Basic Healthcare Sum, but those are not tax relief limits as such.

Technically MediSave-related tax relief is only for the MediSave account holder, when he/she is making a contribution into his/her own MediSave Account. In practice it seems that anybody can make the actual contribution into anybody's MA, and the recipient is the only one who gets any tax relief.

 

[maple96]

Technically MediSave-related tax relief is only for the MediSave account holder, when he/she is making a contribution into his/her own MediSave Account. In practice it seems that anybody can make the actual contribution into anybody's MA, and the recipient is the only one who gets any tax relief.

So now u finally openly admit your mistakes made in this thread

https://forums.hardwarezone.com.sg/124535875-post521.html

U now admit U are wrong that CPFB website provides fake info and that IRAS website will overrule CPFB website rules!

Very good!!

 

[maple96]

Assuming I did not exceed the annual maximum CPF contribution.

If I top up MA $2000 and SA $7000, is the tax relief at $9000?

If u did not exceed CPF annual contribution after u made a topup to MA of $2000, plus your MA did not exceed BHS after the topup, u are entitled to claim tax relief of 2k for VC-MA.

If u do cash topup to SA of $7k, u are entitled to $7k tax relief if SA does not exceeed FRS.

All are called tax relief, except they fall under different rules/caps.

CPF will pass the info to IRAS and IRAS will automatically reflect these in your income tax filing if u qualify.

From IRAS website:

Amount of Tax Relief VC-MA

The amount of tax relief given to the lowest of the following:

Voluntary cash contribution directed specifically to Medisave Account or

Annual CPF contribution cap for the year, less Mandatory Contribution (MC)* or

Prevailing Basic Healthcare Sum(BHS)^, less the balance in Medisave Account before the voluntary cash contribution.

 

[snowblaze]

I couldn’t quote but thank you BCC for your advice at post #207! I guess I will be topping up to parent’s RA account.

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[bicycleming]

hi, my father selling his house, he is 71 years old, retirement account got around 150k, should he put all his selling process of 400k to his retirement account and have a higher monthly payout as retirement account have higher interest?

 

[reddevil0728]

hi, my father selling his house, he is 71 years old, retirement account got around 150k, should he put all his selling process of 400k to his retirement account and have a higher monthly payout as retirement account have higher interest?

Capped at ERS so also cannot put all 400k in.

 

[zoneguard]

hi, my father selling his house, he is 71 years old, retirement account got around 150k, should he put all his selling process of 400k to his retirement account and have a higher monthly payout as retirement account have higher interest?

71 - he may be on RSS or CPF LIFE. You'll need to check.
ERS in 2021 is 279K so that's the maximum amount his RA can be topped up to.
And check if he used CPF to purchase his house - part of the proceeds will need to be refunded back to OA, see the FAQ:
https://www.cpf.gov.sg/members/FAQ/...Housing Scheme&folderid=11482&ajfaqid=2185791

 

[bicycleming]

refunded back to OA means to his OA account? but money at OA can transfer to RA immediately.

total max RA is 279k, his total amount will be 550k by the time he sold the house. So he will have 271k at OA, can take all the money out from OA?

Or can he transfer 100k to my mum and she put at her RA account?

 

[Cobra!]

If u did not exceed CPF annual contribution after u made a topup to MA of $2000, plus your MA did not exceed BHS after the topup, u are entitled to claim tax relief of 2k for VC-MA.

If u do cash topup to SA of $7k, u are entitled to $7k tax relief if SA does not exceeed FRS.

All are called tax relief, except they fall under different rules/caps.

CPF will pass the info to IRAS and IRAS will automatically reflect these in your income tax filing if u qualify.

From IRAS website:

Amount of Tax Relief VC-MA

The amount of tax relief given to the lowest of the following:

Voluntary cash contribution directed specifically to Medisave Account or

Annual CPF contribution cap for the year, less Mandatory Contribution (MC)* or

Prevailing Basic Healthcare Sum(BHS)^, less the balance in Medisave Account before the voluntary cash contribution.

what if i exceeded annual contribution limit? would i still be eligible for tax relief?